1. business and industrial
2. company
3. annual report

Steve’s Skis and Bikes, Inc.1
Just back from a New Year’s ski vacation at Whistler, Steve Mahre, president of Steve’s Skis and
Bikes, Inc. (SSB), became very concerned upon learning that the company’s cash balance had
fallen to just about $9.2 thousand dollars as of December 31, 2013. Steve feared that this might
not be adequate to support the company’s current scale of operations. This was compounded
by the fact that year-end cash balances had been declining now for three consecutive years,
despite the company’s impressive record of sales growth.
The decline in cash was particularly worrisome to Steve because of difficulties he was currently
experiencing with a number of the company’s trade suppliers. These suppliers were pressing
SSB for prompter payment of their invoices (implying a curtailment of the company’s short
term credit) which would severely limit prospects for continuing growth. A deeper fear was
that some suppliers might cancel the company’s exclusive distribution rights for their products.
Moreover, with a low cash balance, it would be difficult for SSB to accelerate payments to
suppliers. Purchase terms were typically 2/10, net 30, and SSB had often been unable to take
advantage of prompt-payment discounts.
Steve’s first step upon learning of the cash crisis was to call Mr. Carl Grizzly, vice-president of
Evergreen Bank. Evergreen had served as SSB’s bank of account since the company’s founding,
and had provided financing for several years in the form of renewable short-term notes. The
interest rate on these notes was currently one and one-half percentage points above the bank’s
prime rate of 3.25%. These notes had been routinely renewed in the past, with only a cursory
review by Mr. Grizzly of Steve’s Skis’ financial condition.
Steve asked Mr. Grizzly to increase the bank’s loan to $140,000 from its current level of $40,000,
explaining that this would enable him to assuage some of his more strident suppliers, while
providing a solid cash reserve for the company. Mr. Grizzly asked when the bank might expect
SSB to repay the extra $100,000, and Steve replied that collection of accounts receivable should
provide ample funds to reduce the loan to its customary level by the end of the year. Not being
at that point entirely up-to-date regarding SSB’s performance and financial condition, Mr.
Grizzly promised to study the matter and to have an answer to the increased loan request
within a few days. He mentioned that because credit conditions were tight, he would have to
refer SSB’s request to the bank’s loan review committee.
SSB is a distributor of a broad range of sporting goods, apparel, and camping equipment,
located in Salt Lake City, Utah. Founded in 1998 by Steve Mahre, SSB was a successful
enterprise almost from the start. A native of Yakima, Washington, Steve won the silver medal
in slalom at the 1984 Winter Olympics in Sarajevo, finishing 21 hundredths of a second behind
his more celebrated twin brother, Phil. He also won the gold medal in Giant Slalom at the 1982
World Championships in Schladming, Austria. Upon retiring from competitive skiing in March
of 1984, Steve had accumulated 9 World Cup victories and 21 podiums. Over the next several
years Steve started a successful ski training camp in Deer Valley, competed in auto racing, and
(with his brother Phil) wrote a book.2
1
2
Eric W. Wehrly prepared this case as the basis for classroom discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
In 2006, at the age of 49, Phil Mahre decided it was time to come out of retirement and make another run at
qualifying for the U.S. National Ski Team.
In 2009, at the age of 52 and still eager for new challenges, Steve used almost all his savings plus
a sizable contribution from his wife’s parents to start SSB. With his ebullient personality, World
Cup prestige, and wide range of sporting contacts, Steve quickly secured numerous customers,
as well as distribution rights from several prominent manufacturers of winter sporting goods.
Recognizing the seasonality of winter sporting goods, Steve included in his company’s offerings
year-round sporting goods and apparel.
The business prospered almost immediately. Sales volume grew briskly, and net revenues had
reached $7.2 million by fiscal year 2013. Steve’s estimate for 2014 was $9.6 million, a target he
was confident of reaching after securing exclusive Rocky Mountain distribution rights for a
popular line of Austrian-made skis, boots, and apparel. Although the company had recorded
positive quarterly net income almost every quarter since it started operations, the annual profit
declined in 2012, and since then profit gains had slightly lagged sales growth.
Over the years Steve’s driving energy and natural selling ability won for him multiple awards
in sales contests conducted by manufacturers. These awards usually consisted of trips to noted
resorts and vacation areas, with all expenses paid. Steve customarily took advantage of these
trips to exchange promotional ideas with distributors from across the country and all over the
world.
SSB’s customers consisted of department stores, discount houses, ski shops, and general
sporting-goods shops. Many of the latter were small and poorly financed. Hence, they tended
to be slow in paying their bills. Keen competition from other distributors inhibited Steve from
pressing too severely for collection from delinquent customers. Reflecting Steve’s efforts to
carry diversified product lines, sales were not markedly seasonal. Steve felt that this was an
important advantage to the company, since it obviated the need to finance seasonal sales peaks.
SSB’s capital stock was entirely owned by Steve and his wife. Complete control of the
enterprise was important to Steve and suited his competitive temperament. As a matter of
policy, fifty percent of the company’s profits had been paid out as dividends to the owners and
had been invested regularly in local limited partnerships specializing in shopping mall and
apartment investments. Although these investments had helped to diversify the holdings of the
Mahres, their performance was not living up to expectations. Their current value appeared to
be about one-half of their aggregate cost.
Steve is active in community affairs, service clubs and charity drives. He has been described by
his business acquaintances as “an All-American boy in the best sense of the term;” “a neargenius at selling who is determined to build a $50 million business;” and “an ideal combination
of businessman and bon vivant.”
2
A Consulting Engagement
At a recent social event, a common friend recommended you to Steve Mahre in the strongest
possible terms, as someone who not only has a solid grasp of the intricacies of financial analysis
and planning, but who also understands the industry-specific and market-wide forces that
shape the opportunities and risks facing Steve’s Skis and Bikes at this point. After a brief
exchange of emails and a delicious dinner at Tempero do Brasil in Ravenna (at Seattle’s
University District), Steve signed a letter of engagement with you and your team.
Under the terms of this letter, you will investigate the reasons behind the negative trend in the
balance of cash, and make recommendations with a view to reversing that trend, while
maintaining and hopefully even enhancing the firm’s profitability and growth prospects. Given
the pressure exerted by suppliers, time is of the essence. You are required to write a report and
make a presentation to the board (the Mahres) in approximately four weeks. Mr. Carl Grizzly
from Evergreen Bank will attend your presentation. With Steve’s concurrence, Mr. Grizzly has
just sent an email message providing more detailed information on the questions that you must
address, as follows:
1. What are the key strengths and weaknesses, threats and opportunities facing SSB at present?
As part of your answer, prepare a financial ratio analysis for SSB over the period 2010-2013.
2. Why have net cash flows been negative over the past three years, even though the company
has been consistently profitable on an annual basis?
3. What will 2014 look like if things continue as they are, and Evergreen denies the new
$100,000 loan?
4. What will 2014 look like if things continue as they are, and Evergreen approves the new
$100,000 loan? When will SSB be able to pay back this loan?
5. In your opinion, how much money does SSB need to borrow right now (for fiscal year
2014)?
6. What is your recommendation for Steve? As part of this item, prepare and present financial
statement forecasts for the relevant time period reflecting your recommendation. Keep in
mind that you are not limited to just changing the amounts borrowed from Evergreen Bank,
or when those loans would be repaid.
In addition, Mr. Grizzly would like to see an explanation about how the forecasting model that
you are using works, as well as tables and/or charts to help convince him that the premises you
used to forecast SSB’s financials make sense, given the values that those same parameters have
taken in the past. Thus, your report should also include:
7. A table showing the values of all parameters you used to forecast, including the values
assumed by these parameters during 2010-2013, along with a brief justification for your
assumptions.
8. A brief “user’s guide” so that Mr. Grizzly can run simulations on his own, before reaching a
decision on Steve’s loan application.
3
Expected deliverables3 from this engagement are:

A written report addressing items 1-8 above.

Excel file with the forecasting model, reflecting your recommendations to Steve (item 6
above), including relevant ratios and charts.

Powerpoint slides focusing on the problem diagnostic and proposed solution(s).

A visual-oral presentation by the team focusing on the problem diagnostic and proposed
solution(s).
As you celebrate with your classmates and partners the first big contract of your fledgling
financial consulting firm, and ponder how to deliver the best possible recommendation to Steve
Mahre, your cellphone rings. You notice it’s the friend who helped you land this engagement,
and quickly pick up the phone. He says he worked with both Steve and Evergreen Bank before,
and asks if it would be OK to text you a list of things they will most likely be looking for when
evaluating your team’s work. “Of course.”, you say, “That would be wonderful! Thanks again
so much for recommending us to Steve. We won’t let you down.”
Soon after your phone buzzes, you read the message, and then pass it around the table. This is
what’s on the screen:
1.
2.
3.
4.
5.
sound business/finance/acct logic – 60%
really good writing – 10%
smooth, clear, interesting talk, 12 min max – 10%
well designed ppt, not too many, don’t look! – 10%
creativity/imagination; explore many options – 10%
One of your teammates asks whether you could call back and ask for more details. “What does
he mean exactly , for example, by exploring many options? How many? And how about good
writing? It’s not clear to me at all!”
“Nope.” You say. “That’s plenty already. What we need to do is surprise Steve with a superb
piece of work, way beyond anything he’s seen before. Let’s divide the work up, and get started.
The clock is running, and I am already looking forward to the next engagement. “
,
3
Please post just ONE file to Canvas, with the title “lastname.firstname.docx”, where the first and last names are
for any one who is a member of the group. The other required files (xlsx and ppt) should be inserted as objects
within the primary file.
4
Steve’s Skis & Bikes, Inc.
Balance Sheets as of December 31st
(Thousands of dollars)
2010
Cash
$
40.5
2011
$
34.8
2012
$
27.5
2013
$
9.2
Accounts receivable, net
264.3
228.4
364.0
424.7
Inventory
215.1
284.7
460.8
567.7
520.0
547.9
852.3
1,001.5
56.3
61.2
82.6
109.6
-
(5.6)
(11.7)
(20.0)
Property, plant & equipment, net
56.3
55.6
70.9
89.6
Other long term assets
43.4
64.7
97.3
129.5
619.7
668.2
1,020.4
1,220.6
24.0
38.0
40.0
40.0
131.8
81.4
357.3
482.1
Accrued expenses payable
24.0
55.0
80.0
90.0
Total current liabilities
179.8
174.4
477.3
612.1
375.0
375.0
375.0
375.0
64.9
118.8
168.2
233.5
619.7
668.2
1,020.4
1,220.6
Total current assets
Property, plant & equipment, gross
Accumulated depreciation
Total assets
Notes payable, bank
Accounts payable, trade
Capital stock
Retained earnings
Total liabilities and equity
5
Steve’s Skis & Bikes, Inc.
Income Statements for fiscal years ending on December 31st
(Thousands of dollars)
2010
2011
2012
2013
$ 2,412.0
$ 3,597.0
$ 5,406.0
$ 7,197.0
1,936.0
2,902.8
4,392.9
5,844.0
Gross margin
476.0
694.2
1,013.1
1,353.0
Selling, general, admin. expenses
334.0
501.0
753.0
1,005.0
Operating income
142.0
193.2
260.1
348.0
Interest income
0.3
0.6
0.5
0.3
Interest expense
0.6
1.5
1.9
1.9
Discounts forfeited
25.8
-
82.2
113.1
Income before tax
115.9
192.3
176.5
233.3
Income tax expense
51.0
84.6
77.6
102.7
Net income
64.9
107.7
98.8
130.7
-
53.8
49.4
65.3
Net sales
Cost of goods sold
Additional information:
Dividends paid
6
Steve’s Skis & Bikes, Inc.
Statements of Cash Flows for fiscal years ending on December 31st
(Thousands of dollars)
2010
2011
2012
2013
$ 64.9
$ 107.7
$ 98.8
$ 130.7
-
5.6
6.1
8.3
(Inc.) Dec. in acc. receivable
(264.3)
35.9
(135.6)
(60.7)
(Inc.) Dec. in inventory
(215.1)
(69.6)
(176.1)
(106.9)
Inc. (Dec.) in accounts payable
131.8
(50.3)
275.8
124.8
Inc. (Dec.) in accr. exp. payable
24.0
31.0
25.0
10.0
(258.7)
60.3
94.1
106.2
Capital expenditures
(56.3)
(4.8)
(21.4)
(27.0)
Inc. in other LT assets
(43.4)
(21.3)
(32.6)
(32.2)
(99.7)
(26.2)
(54.0)
(59.2)
24.0
14.0
2.0
-
-
(53.8)
(49.4)
(65.3)
375.0
-
-
-
399.0
(39.8)
(47.4)
(65.3)
40.5
(5.7)
(7.3)
(18.3)
-
40.5
34.8
27.5
40.5
34.8
27.5
9.2
Operating activities:
Net income
Depreciation
Cash flow from (to) operations
Investing activities:
Cash flow from (to) investments
Financing activities:
Inc. in notes payable
Dividends declared and paid
Stock issued
Cash flow from (to) financing
Net cash inflow (outflow)
Reconciliation:
(+) Beginning cash balance
(=) Ending cash balance
7